2025: A Roadmap to Economic Revival

January 13, 2025 Mahi Bukhari

As we embark on the year 2025, there is a sense of cautious optimism regarding Pakistan’s economic trajectory. Economic indicators are on the rise, although starting from a low base. Nevertheless, the upward trends offer hope that the nation may be on the path to sustained growth and stability. The challenge for the government and economic planners, however, is to ensure that this momentum continues, focusing on strategic reforms and decisions that could transform the economy.

In this article, we explore the top 25 priorities for the Pakistani economy, aimed at stabilizing the currency, fostering growth, and implementing crucial reforms. These strategies are necessary for ensuring Pakistan’s long-term economic viability and prosperity.

1. Ensuring Currency Stability

A stable currency is the foundation of a stable economy. Rather than resorting to artificial interventions, Pakistan needs to prioritize fiscal discipline. Keeping a close check on imports, tightening monetary policy, and avoiding unnecessary incentives for non-essential imports will be critical in curbing inflation and ensuring the long-term strength of the rupee.

2. Maintain High Interest Rates

Despite aspirations for lowering borrowing costs, Pakistan must maintain double-digit interest rates until inflation is under control, exports are competitive, and remittances are optimized. This will also help in stabilizing the currency and avoiding an inflationary spiral.

3. Privatization of State-Owned Enterprises (SOEs)

One of the most significant steps towards reducing fiscal pressure is the privatization of loss-making state enterprises. A key example is Pakistan International Airlines (PIA), which should be privatized at the right price to secure its future and ease the burden on state finances.

4. Privatizing Distribution Companies (Discos)

To address the persistent issues in Pakistan’s power sector, the government must take decisive steps to privatize distribution companies like IESCO, GEPCO, and FESCO. This will increase operational efficiency and help resolve the electricity crisis.

5. Transfer of Provincial Expenses

Several federal expenditures, such as the Benazir Income Support Program (BISP), health, and education, as well as energy sector losses from SEPCO, QESCO, HESCO, and PESCO, need to be transferred to the provincial governments. This decentralization will allow for more effective management and accountability.

6. Taxation of Key Sectors

The government must ensure that sectors such as agriculture, wholesale trade, and retail, which have historically been under-taxed, contribute fairly to the national exchequer. This includes enforcing strict measures for documentation, reducing exemptions, and curbing the tax evasion culture.

7. Expanding Irrigation and Agricultural Development

Pakistan’s agriculture sector must be revitalized by expanding irrigation and improving water management. This will help increase crop yields, enhance food security, and support the export of value-added agricultural products.

8. Reducing Government Jobs

A bloated public sector is a significant drain on national resources. Political patronage often leads to low-grade, unnecessary government jobs. Streamlining the civil service and offering voluntary retirement schemes for redundant employees will improve government efficiency.

9. Digitizing the Tax Machinery

A more efficient, transparent, and digital tax collection system can combat corruption and increase tax compliance. Implementing user-friendly digital tools like call centers, online facilitation centers, and a centralized tax database will significantly reduce barriers for taxpayers.

10. Incentivizing Formalization of the Economy

To address the large informal economy, the government should incentivize the documentation of financial transactions. Providing rebates on tax payments for documented transactions will encourage businesses to formalize, leading to greater tax compliance and financial transparency.

11. Rewarding Competent Public Servants

A vital element in reforming the public sector is ensuring that competent and honest officers are rewarded for their efforts in curbing tax evasion, smuggling, and corruption. These officers should be provided with financial incentives to motivate further reform.

12. Combatting Smuggling

Smuggling costs Pakistan billions of rupees each year. To address this issue, the government must target all stages of smuggling, from border crossings to markets. Stringent penalties and enhanced border security measures are essential to curbing illegal trade.

13. Penalizing Non-Filers and Late Filers

To reduce tax evasion, the government should impose higher taxes on non-filers and late filers. The new law banning non-filers from buying property or cars and accessing certain financial services should be enforced rigorously to encourage compliance.

14. Corporate Tax Reductions for Listed Companies

Tax incentives should be provided to companies that choose to list on the Pakistan Stock Exchange (PSX) and maintain professionally governed structures. These incentives should include tax breaks for those committed to transparent financial reporting and documentation.

15. FDI Attraction and Investment Incentives

Pakistan needs to attract foreign direct investment (FDI), especially in sectors that promote exports or substitute imports. One of the ways to achieve this is by offering incentives for businesses that bring in new technologies and create high-value jobs.

16. Crowdfunding for Infrastructure Projects

To fund large-scale infrastructure projects, including the upgrading of Pakistan’s railways, crowdfunding through mechanisms like the Naya Pakistan Certificates should be encouraged. Overseas Pakistanis, who offer a significant source of remittances, can be incentivized with high-yield investment opportunities.

17. Boosting IT Exports

The IT sector is one of the most promising industries for Pakistan’s economic future. The government should set up nationwide training programs to equip young Pakistanis with skills to tap into the global freelancing market. Moreover, export proceeds from IT should be incentivized through rebates.

18. Fostering Innovation and Entrepreneurship

To promote entrepreneurship, Pakistan needs to establish startup funds that co-invest in early-stage ventures. The government must also introduce policies that foster a culture of innovation, encouraging young entrepreneurs to launch businesses and create jobs.

19. Developing 100 IT Universities

To meet the growing demand for skilled labor in the tech sector, Pakistan must establish at least 100 universities that offer specialized IT education. These institutions should not just focus on academics but also provide hands-on training and create industry partnerships.

20. Attracting Export-Driven FDI

Pakistan should focus on attracting foreign investment that directly increases exports and reduces reliance on imports. Incentives should be provided for businesses that adopt sustainable practices, introduce new technologies, and create exportable goods.

21. Policy Consistency

Inconsistent policies have often hindered economic growth in Pakistan. To avoid policy disruptions that harm industries, the government must create a consistent policy framework that prioritizes long-term economic development over short-term political gains.

22. Accelerating EV Adoption

Electric vehicles (EVs) present an opportunity to reduce Pakistan’s dependence on imported fuel. The government should incentivize the adoption of EVs, especially for public transportation, which would not only reduce costs but also improve environmental sustainability.

23. Domestic Oil and Gas Exploration

To reduce energy import bills, Pakistan should focus on expanding its domestic oil and gas exploration. State-owned exploration companies should be mandated to reinvest profits into the discovery of new reserves both onshore and offshore.

24. Reforming the Real Estate Sector

The real estate sector needs urgent reforms to curb speculation and increase tax compliance. Valuation tables must be updated to reflect market prices, and transactional taxes must be restructured to prevent corruption and encourage transparent transactions.

25. Reducing Salary Taxes

Currently, Pakistan’s high salary tax rates, particularly for lower-income earners, discourage formal employment and drive many workers into the informal economy. Salary taxes should be reduced to attract skilled labor, prevent brain drain, and encourage documentation.

FAQs

1. How can Pakistan stabilize its currency?
Pakistan can stabilize its currency by controlling imports, tightening monetary policy, and avoiding excessive consumption incentives for non-essential imports. Maintaining fiscal discipline is key to preventing inflation.

2. Why is privatizing state-owned enterprises important?
Privatizing state-owned enterprises like PIA and Discos is crucial for reducing fiscal burdens on the government. It enhances operational efficiency, reduces government spending, and can attract private sector investment.

3. How can Pakistan boost IT exports?
Pakistan can boost IT exports by training millions of young Pakistanis in digital skills, offering tax rebates on export earnings, and promoting freelancing opportunities on global platforms.

4. What measures can Pakistan take to reduce tax evasion?
Pakistan can reduce tax evasion by penalizing non-filers and late filers, digitizing the tax system for ease of collection, and incentivizing businesses to formalize their operations.

5. Why is energy security important for Pakistan’s economy?
Energy security is vital for economic growth as it supports industrial activity, reduces reliance on expensive imports, and ensures stable electricity supply for businesses and households.